LOUISVILLE — The University of Louisville's foundation awarded a $200,000 no-bid contract last summer to an advertising firm whose CEO sits on the university's board of trustees.
U of L President James R. Ramsey, who also serves as president of U of L's non-profit foundation, acknowledged last week it was "a mistake" to give the contract to Creative Alliance, the firm headed by university trustee Debbie Scoppechio, without shopping around.
He said the foundation's board began drafting a tighter contract approval process and oversight policy after the Herald-Leader requested the foundation's consulting contracts through the Open Records law in December.
"The procedures were too vague," Ramsey said in an interview Thursday. "... We didn't have a way to catch what happened."
The move to bolster the U of L Foundation's internal controls comes as leaders at the University of Kentucky are considering creating a similar umbrella foundation to oversee fund-raising and spending of endowment money across UK's 17 academic colleges.
UK is the only one of Kentucky's eight public four-year universities that doesn't have a foundation as its primary fund-raising organization, said Dennis Taulbee, general counsel of the Kentucky Council on Postsecondary Education.
UK solicits donations through a central development office and some larger colleges have staff fund-raisers. Endowment funds are managed through UK's treasurer's office.
"We're going to be going into another fund-raising campaign and before we did it, I just wanted to see if there is a better way to track fund-raising," said UK President Lee T. Todd Jr. Todd is awaiting a report from a consulting firm that's reviewing, among other things, whether UK would benefit from creating a foundation similar to U of L's.
But U of L leaders have found it is sometimes difficult to balance transparency and accountability with the flexibility a separate, non-profit foundation affords them.
"There's no doubt a foundation can be a very effective means to take care of a university in a more business-like way, in a nimble way," said Jessica Loving, a former U of L trustee. "But it has a downside as well — the administrative side and trying to coordinate the foundation with the statutorily controlled administration of the university."
For instance, a foundation can receive a gift of land and quickly put it on the open market to sell. It could take months longer for UK to sell off a similar gift of property because it would have to go through several rounds of approval, including a sign-off by its board of trustees.
At the same time, a foundation doesn't have to follow the state's strict policy for hiring contractors, which requires seeking bids from multiple firms.
'A less formal approach'
At U of L, Ramsey said any firms hired by the foundation should go through a competitive bidding process in the future.
In July, U of L's senior associate vice president for advancement, Mary Griffith, followed the foundation's previous "less formal approach" to select Creative Alliance for U of L's "It's Happening Here" TV ad campaign, said Michael J. Curtin, U of L's vice president of finance and the foundation's treasurer.
Griffith solicited suggestions from other colleges on campus and found that U of L's Speed School of Engineering and the College of Business had contracts with Creative Alliance — paid through the foundation using endowment money tagged specifically for promotions.
Creative Alliance was chosen through formal competitive processes in both cases, according to information provided by deans of both colleges.
But with the "It's Happening Here" campaign, Curtin said Griffith was aware two other large local firms, Doe Anderson and New West, had conflicts because they represented other universities.
Doe Anderson had a long-time contract with Bellarmine University and New West did work for UK Healthcare until December. Becky Simpson of New West and Michael Littman of Doe Anderson confirmed that no one from U of L contacted them about potentially bidding for the campaign.
"I'd be amazed if they just gave it to Debbie or Creative Alliance without checking with a firm that didn't have a conflict," Littman said.
Griffith went with Creative Alliance because it was "touted as having excellent media planning and execution, which was deemed to be cost effective," Curtin said.
Scoppechio, who was traveling last week and didn't return requests for comment, signed a disclosure letter that's attached to all three of Creative Alliance's contracts through the U of L Foundation.
"For so long as I serve as a member of the Board of Trustees ... I am disclaiming any interest in income that might come to me from these contracts," Scoppechio wrote.
Ramsey said Scoppechio did nothing wrong and the foundation broke no laws by engaging in a no-bid contract. But he expects the foundation to put in place stronger controls at its March board meeting.
University officials who recommend hiring contractors through the foundation must provide more documentation of their selection process under the draft policy in the works, Curtin said.
Chain of command?
U of L leaders set up the foundation before the university became part of the state's public system in the 1970s. The foundation board has a nominating committee to select its own members, unlike the university's trustees who are appointed by the governor.
Because it hasn't traditionally been considered a public agency, the foundation kept its records private until The Courier-Journal of Louisville sued to get donor information and a court ruled the foundation should be subject to the Open Records law.
Todd said UK is considering forming a foundation to better coordinate how donations are being spent. He said transparency would be a tenet of any restructuring UK does.
"I guess I'm looking for a way to monitor activity," Todd said. "It's an accountability issue, I guess."
But the U of L Foundation, as it's structured, has no full-time staff and appears to have no clear chain of command.
Three people associated with the foundation offered different answers when asked who manages the foundation's day-to-day activities.
Salem George, who sits on the foundation's board and university board of trustees, said the U of L Foundation's chairman, Chester Porter, provides such oversight.
Curtin said university department heads are responsible for vetting firms and recommending spending of foundation money in their areas.
And Ramsey said he, as president of both entities, is in charge.
Ramsey, however, couldn't answer specific questions about the purpose and results of several contracts.
In all, the U of L Foundation spent at least $2.67 million last year on consultants, lobbyists, lawyers and advertising and public relations firms, according to a Herald-Leader review of spending documents.
That included a $20,000 contract in July for New York-based marketing firm SME, Inc. to study how best to brand the Grawemeyer Awards — five $200,000 awards given annually for excellence in music, psychology, education, political science and religion.
But SME's report hasn't been acted on, said Mark Hebert, spokesman for the university.
The $20,000 for that study came out of the Grawemeyer endowment fund — the same fund U of L Provost Shirley Willihnganz told university trustees on Thursday was hit hard by losses in the stock market. She recommended reducing the $200,000.
The U of L Foundation also paid Peritus Public Relations $771,000 in 2009.
The firm received $180,000 in retainer fees, while much of the rest covered the cost of billboard advertisements and polling.
The foundation also reimbursed Bob Gunnell, the firm's partner who works with the foundation, for more than $11,000 to cover the cost of nine trips to Washington, D.C., from December 2008 to October 2009. The U of L Foundation in 2007 tasked Gunnell, a registered lobbyist, with securing $13.1 million in federal transportation funds — money he said he's still trying to secure.
Ramsey, however, said he wasn't aware Gunnell was lobbying on U of L's behalf even though his office recommended the contracts with Peritus.
That contract, like many approved by Ramsey's office, was signed by Kathleen Smith, Ramsey's executive assistant who serves as secretary to the university trustees and U of L foundation board.
Paying public relations, advertising and marketing firms through the foundation has been a help to the university, Ramsey said.
A fund-raising consultant had recommended the university burnish its image with ads while conducting major donation campaigns. So the foundation tagged up to 1.5 percent of its annual funds — about $7.29 million in fiscal year 2009-10 — for university ads and development activities.
Ramsey said marketing and advertisements used to be paid through a combination of donations and public funds. "Now, we reallocate those state funds for other purposes," he said.
Ramsey declined to say whether UK should create a similar foundation. But Loving, the former U of L trustee, urged UK to be careful.
"If you approach it as part of the university and you follow those same kinds of rules," she said, "you can probably avoid most potential pitfalls."